As per Article 3 of the Federal Decree Law No 47 on “Taxation of Corporations and Businesses”, in UAE for financial years beginning on or after 1st June 2023, the threshold of annual taxable income chargeable to corporate income tax at the rate of 0% for Taxable Person was to be specified separately by a Cabinet Decision.
On 16 January 2023 MOF has announced via Cabinet of Ministers Decision No. 116 the threshold as AED 375,000/- (Three hundred seventy -five thousand dirhams). Given this, the corporate tax rate of 0% and 9% will be applicable progressively as under:
- 0% on the annual taxable income upto AED 375,000; and
- 9% on the annual taxable income exceeding AED 375,000.
- The aforementioned threshold is applicable to a Taxable Person (both natural and juridical person) irrespective of the number of Business or Business Activity it carries out in a tax period.
What is Business and Business Activity?
- The Cabinet Decision defines a “Business” as “an activity conducted regularly, on an ongoing and independent basis by any Person and in any location, such as industrial, commercial, agricultural, vocational, professional, service or excavation activities or any other activity related to the use of tangible or intangible properties”.
- It defines a “Business activity” as “any transaction or activity, or series of transactions or series of activities conducted by any natural or juridical person in the course of its business.”
Artificially splitting of a Business or Business Activity to obtain Corporate Tax advantage
- Artificially splitting of a Business or Business Activity across the taxable persons entire business or business activity to take the benefit of the threshold of 375,000 dirhams on standalone basis could be considered as an arrangement to obtain Corporate Tax advantage under the General Anti Abuse provisions of the Decree Law.
- Federal Tax Authority shall be permitted to examine such arrangement and while doing so it may consider all relevant facts and circumstances including financial, economic, and organizational links.
Alia Noor (FCMA, CIMA, MBA, GCC VAT Comp Dip, Oxford fintech programme, COSO Framework)
Ahmad Alagbari Chartered Accountants